The Heirs Tax Bomb™ — How Your IRA May Hurt the People You Love
Before 2020, heirs could 'stretch' an inherited IRA across their entire lifetime — gentle taxation, decades of growth. The SECURE Act ended that. Today, most non-spouse heirs must drain the entire account within 10 years, often during the highest-earning years of their lives.
5 min read
The 10-year rule, in plain English
When a non-spouse heir (an adult child, for example) inherits an IRA, the entire balance must generally be withdrawn within 10 years of the original owner's death. Many heirs also face annual RMDs during those 10 years if the original owner had already started taking RMDs.
The result: $1 million of inherited IRA might land squarely on top of an heir's peak career income — at the highest marginal bracket of their life.
An illustration
Hypothetical. Assumes high-bracket heir, 10-year liquidation, equal portfolio growth.
Same starting balance. Same growth. Different account type. The Roth heir keeps roughly twice the net wealth because Roth distributions are not added to taxable income.
What families can do
- Multi-year Roth conversions during the owner's lifetime — move pre-tax dollars into Roth at controlled rates.
- Coordinate beneficiary designations so spouses inherit tax-deferred assets (favorable spousal rules) and heirs inherit Roth or after-tax assets where possible.
- Qualified Charitable Distributions (QCDs) — for charitably inclined households, direct IRA dollars to charity instead of through an estate.
- Life insurance in some cases — paying future taxes with tax-free death benefit dollars.
- Trust planning to spread distributions and protect heirs from their own bracket spikes.
Soft next step
Run the free analysis and see how these concepts apply to your own numbers.
Review Your Retirement Tax Exposure